Kotak Realty Fund, which recently raised $200 million from abroad investors, is looking to raise another $200 million over the next six months. With $1 billion funds under management, it is one of the most active funds in the country. S Sriniwasan, CEO of Kotak Realty Fund, talks to Raghavendra Kamath about their strategy and the overall real estate market. Edited excerpts:
You went for a fresh round of fund-raising recently. We were told the Abu Dhabi Investment Authority was the main investor...
We have completed the first close of our latest international real estate fund, raising $200 million. I am not at liberty to disclose investor names. With this, Kotak Realty Fund now manages / advises combined assets under management (AUM) of over $1 billion across six funds. The investment strategy of the Fund is to invest in residential development projects in the top five cities in India and take advantage of the high demand potential and attractive investment opportunities that exist in this asset class.
Why did you take more than a year to close the fund?
The current fund-raising environment is challenging. We are extremely pleased to have completed the first close in less than a year. In sharp contrast, the investment environment in India, particularly in residential real estate, is very attractive. The market is capital-starved and this gives funds such as ours an excellent opportunity to focus on more established locations and generate attractive returns for our investors.
There are reports that you are looking at a final close of $400 million in the next six months...
We have the flexibility to increase the fund size to approximately $400 million. We are in discussions with certain investors. It is not possible to give a timeline for the same.
How are global investors responding to your fund raising plans?
In general, global investors have become skeptical of the Indian growth story due to the volatility in currency and the slowing in the economy. Hence, investors by and large are adopting a wait-and-watch policy.
Is it challenging to exit your investments under the current market conditions?
We are looking to exit some of our investments from our older funds. It is a challenging environment for funds to complete exits. However, a majority of our investments are in residential real estate in top-tier cities, where sales are okay. Hence, we are not facing any significant difficulties in exits.
What is your take on the slowdown in property markets?
In the short-term, the real estate market will be sluggish and this will continue for the next couple of quarters. However, as long-term investors in the Indian realty market, we are bullish about the prospects of the property market over a three- to five-year horizon.
Which segments are you focusing now, given the slowdown in property markets?
We have been focusing on the residential segment for the past three years as we believed there is over capacity in the office/commercial segment. We will continue to focus on residential segment in the top five to six cities such as Mumbai, Delhi and Bangalore. Oversupply in the office space will fall over the next three years and this segment will see a turnaround. We will selectively evaluate investment opportunities in this sector.
Do you have any other fund-raising plans now?
No, we do not have any other fund-raising plans for realty funds.
Are you looking to increase your IRR (internal rate of return) expectations or returns threshold due to current market conditions?
In the current environment, where liquidity is scarce, we are in a position to negotiate good terms. IRRs are an outcome of market performance.
Are you looking to tweak the ticket size of your investments, investment threshold for your investors and the type of investments (debt versus equity)?
We have focused on structured investments with an element of downside protection and upside participation. We will continue to use this strategy. In terms of ticket size of investments, we have a flexible approach and can invest all the way from $25 million to $200 million. In larger transactions, we may see some of our LPs (limited partners) co-investing with us. Size is, therefore, not a constraint.